The Short Sale Process – An Overview
- Agent lists the property and calculates that the sales price results in a short pay
- Agent or Attorney contacts the lender(s)
- Lender requests documents; appraisal, hardship letter, etc.
- Property is marketed for Sale with the contingency that the lenders approval is required before the close of escrow
- Buyer makes an offer that is accepted.
- Offer and estimated closing statements sent to lender
- Lender will provide decision and if approved the lender may request that certain fees or costs be reduced
- Escrow closes – Lender keeps all proceeds from sale minus closing costs
- Lender deals with the unpaid balances that is still owed
Short Sale Process – The Details
At Outlook Escrow, Inc. we are here to assist all parties going through a short sale. Experience the convenience of working with a short sale facilitator at your escrow company!
What is a Short Sale (Short Pay, Pay Off)?
A Short Sale is a process where the lender will look at the loan(s) which you have with them and determine whether or not the homeowner owes more than the Fair Market Value of the home or has such a small amount of equity that if sold, could not cover the agent or closing costs. When they determine any of these to be true, they will then consider discounting the loan(s) to reflect a price which will facilitate the property to sell on the market.
When is the best time for me to start the process for my Short Sale?
It is best to begin the Short Sale process as soon as you realize that you cannot afford your payment; you know that your outstanding loan is more than the ‘Fair Market Value’ and cannot sell for what you currently owe; or you have little equity in the property which will not cover the realtor, closing or any other associated cost that will be needed to cover in order to sell the property.
Why would my Lender want to allow a Short Sale to help me?
It is a simply reality. Often a short sale has a far better return on an investment to the lender than a foreclosure. The average savings a lender sees from a short sale property is far higher than the savings of a foreclosure property. Not only does the lender receive higher savings when they allow a short sale, they also get paid on the loan 6 months earlier then in the foreclosure process. This allows them to collect and cash out earlier than they would if they foreclosed on the property. Not to mention the costs the lenders have to pay their attorneys to complete the foreclosure process. Lenders created the short sale process as an alternative to foreclosure for those reasons. It is a Win-Win situation for the banks to allow short sales. They do not look at this as helping you, they look at it as a positive solution to a very costly and time-consuming issue.
How long does the Short Sale process usually take?
The entire process of a Short Sale generally takes 30 to 90 days (1 to 3 months). All situations are unique and therefore we cannot guarantee a specific amount of time.
What is the difference on my credit between a Foreclosure and a Short Sale?
A foreclosure will show a Foreclosure or a Debt Not Paid on your credit. It is a very negative mark on your credit that can stay there for up to seven years. A short sale will show as Debt Paid or Settled and stays on your credit for only two years. It is a much better mark and will make it easier for you to get credit in the future. Please consult one of the three major creditors for further explanation.
What are all of the liabilities when doing a Short Sale?
On December 20, 2007 President Bush signed a measure to provide financial relief for financially strapped homeowners facing foreclosure. The bill gives a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or renegotiation of a loan. No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income. Always consult your local CPA for further information on this matter.
The only forgivable debt that is not taxable is debt used to buy, build or substantially improve your principal residence or to refinance debt incurred for these purposes. Many people have mortgage debt for cars, RVs, college expenses, etc. These debts would not qualify for debt forgiveness.
It is important to note that if a property should go into foreclosure and is sold at auction the difference in the amount you owe on your loan and the price the lender will get on a foreclosure sale is much higher than the discount they will give at a short sale.
Completing a successful Short Sale will eliminate a Deficiency Judgment from happening and minimize the tax liability you may have. It will also stop you from having a foreclosure on your credit. ALWAYS CONSULT A TAX SPECIALIST REGARDING ANY TAX ISSUES.
What is a Deficiency Judgment?
A Deficiency Judgment is what can happen if the bank sells a house in a foreclosure sale auction. The bank has the right to sell the house for an amount less than the debt owed and all other fees they may have. If the house sells for less than the mortgage debt, then a Deficiency Judgment can be placed against you. By this you will be held responsible for the portion of the loan that was unpaid. Example: Initial Mortgage Loan of $400,000. The bank collects $300,000 at a Foreclosure Auction. A Deficiency Judgment is placed against you for $100,000 which is the difference. If this is placed on you it will also show on your credit along with the Foreclosure. Once this is placed as a judgment against you the lender can proceed with further legal actions and garnish your wages to collect on the debt. Some states have regulations and restrictions on Deficiency Judgments, but unfortunately MOST DO NOT.
Why hire Outlook Escrow, Inc. to help with my Short Sale?
The members of our knowledgeable staff are experts at short-sale proceedings and believe we are a viable solution. We are here for you with answers. We want you to feel confident that you are making the right decision for your specific situation. We work with all our clients in top confidentiality, integrity and thoroughness. You will feel confident with us by your side!
Do I need to sign a Power of Attorney when processing a Short Sale?
NO! At no time should you have to sign a power of attorney to process a short sale.
Can your agent negotiate a Short Sale when a home has more than one mortgage?
Yes. The process is the same regardless of the number of liens.
Can you guarantee that my short sale will be successful?
We can guarantee that we will do all that is required to complete a successful short sale. Unfortunately we cannot guarantee what the lenders will make as their decision. At Outlook Escrow, Inc. we know what the lenders require and are looking for as a discounted price. This makes our success level much higher!
Important Tips for the Short Sale Process
For the Seller:
- Watch your spending – lenders with look over your bank statements and analyze spending habits
- Be prepared for possible closing costs – some lenders require a seller-signed promissory note
- Your credit report will not always be spared of delinquent marks – rarely do lenders remove previous marks of late payments
- If you receive any correspondence for the lender, please forward to our office as soon as possible.
- Continue to maintain property to help prevent further loss of value and vandalism
- Be sure to provide correct and up-to-date loan information – if the loan has been sold to another lender, please be sure to provide the newest account numbers
For the Agent:
- Please contact the short sale lender sparingly, we like to get your status for you – if multiple people are calling with authorization, our company’s authorization to speak with the bank will become invalid
- If buyers cancel offers that have been submitted to the lender, please inform us immediately
- If house is vacant, continue to watch over it. If house becomes vandalized it will affect the value of the home and the possible short sale approval
- If there is no buyer for a short sale, our company can not begin facilitation with the lender, however you can still submit the short sale package to be placed on hold until a buyer is secured
- If you have received multiple offers, please submit to our company only the best offer
- Keep in touch with buyer’s agent through out entire short sale process
California Foreclosure Process
Delinquency and Pre-foreclosure Period
The delinquency period is the period of time between when the borrower stops making the regular payments and the time the lender starts the foreclosure. This could be a period of one to three months or more.
Start of Foreclosure
In almost all cases, foreclosures are handled out of court. The process begins when the lender files the notice of default (NOD) with the county recorder identifying the default amount and the date the borrower must pay off the default. The notice is mailed to the borrower and other affected parties.
NOTE: The Notice of Default or the NOD is a legally recorded document. It must be recorded and posted properly. Lenders often send out official-looking “notices” to borrowers who are delinquent in hopes of scaring them into compliance. These notices are not the start of legal foreclosure.
(Court foreclosures only occur if a lender declares a deficiency judgment. This process gives the borrower up to one year to redeem the property after the foreclosure sale. This type of court action mostly occurs on non-purchase money loans like refinances and home-equity lines of credit. However, the lender rarely pursues this action in California and you will be notified early in the process if the lender chooses this action.)
Notice of Trustee’s Sale
Not less then three months after the notice of default is filed the lender can schedule a trustee’s sale of the property.
At least 20 days before the trustee’s sale and after the 3 month notice of default period the lender must post the notice of sale on the property and in one local public location. The notice is also published once a week for three weeks in a local newspaper starting at least 20 days before the sale date. The notice is mailed to the borrower at least 20 days before the sale and to anyone who requests the notice. The notice must contain the date, time and location of the sale, the property address, and the trustee’s contact information. In addition the notice of sale must be recorded with the county recorder at least 14 days before the sale.
Up to five business days before the trustee sale, the borrower may pay off the default plus any applicable costs of foreclosure and stop the foreclosure process.
The Trustee’s Sale
The bidder to pay the full amount in cash or cashier’s check. Anyone may bid at the sale, including the lender and any junior lien holders. A trustee’s sale may be postponed by announcement at the sale. If a sale is postponed more than three times, a new notice of sale must be issued.
After the sale is complete, the trustee transfers ownership to the winning bidder. The borrower does not have the right to redeem the property after the sale.